Tag Archives: retirement income

To Downsize Or Not?

Here’s a great question that’s worth sharing and thinking about for any of us within 10 to 15 years of retirement:

“I was wondering if you could give your opinion on which direction my husband and I should take?   At what point does it make sense to sell your home and downsize? Financially, we are sitting home with an outstanding mortgage of $300,000. Our home value is about $725,000. We are both in our 50s and will be relying on the equity made on our home to fund our retirement. I will have a small monthly company pension and my husband will not. My question for you is, do we try and sell our house now and pay off half our mortgage/credit line? Or would it be financially better to remain in our home for another 10 years or so, and chip away at our mortgage?

Sadly, the answer is: I don’t know. I can’t answer that for you because the critical part is the answer to what the value of your house will be in 2032. If anyone claims to know that, they’re lying to you. I can’t even get more than three lottery numbers right so I’m not the one to ask.

You need to remember that I only ever answer questions, or talk about stuff, in terms of what I would do because I don’t ever have all the information. In my case, I don’t have any pensions and my house is up for sale in order to downsize significantly.

Half the world would ride it out and hope for a much higher value. The other half more conservative and risk averse group would downsize and reduce the debt, the interest that’s needed to carry it, and lock in the guaranteed $725k value by selling.

But lots of that depends on what degree of downsize. Using your math, it’d be about $1500,000 on the new condo, house, etc. Would that, divided by 10 years, be workable? Would those payments guarantee that you’ll be debt free in 10 years when retiring? If so, that’d be a huge saving.

After all, whether you make more income in retirement or have LESS debt to pay, it amounts to the same thing…actually it’d be more valuable as income is taxable, paying off debt isn’t. That’d be like an extra $1,500 in retirement that’s not going to the mortgage!

Gamble the house is $850,000 in a decade and that any correction comes and goes in that cycle, that there’ll be no correction, or take the money and run? That’s entirely up to you two and your comfort zone.

I do know that you can’t eat your equity. In other words, the equity isn’t something you can use unless and until you do sell. So the day will come…but when?

When You’re In Charge of Your Own Retirement Finances

We talk about finances all the time, and one of the biggest financial decisions is probably your retirement savings. That’s more critical when you’re older but way easier to accomplish when you’re younger. Now, this is not a shot against the current government, but a comment about government programs overall.

There are a few things the government does really well. Included in that list is the military, foreign affairs and the passport office which is just incredibly efficient and well-run. But generally, any government programs are not very effective, and you will always be able to do better, and do more on your own, without waiting or hoping the government will come to your rescue. They won’t – and by the time you’re done waiting for a bailout package, or meaningful help from the government – you’ll be dead, honestly.

There is no place where that is clearer than with our Canada Pension Plan: The CPP pays a maximum of $884 to you in retirement. Let’s use this $884 maximum, even though the average pension benefit recipient gets $481.

Let’s take the lowest working person in the country. We’ll take someone who works from age 18 to age 65 and makes $2,000 a month. So this is a person who never gets a promotion, never gets a raise, and never improves on that income – someone who literally makes a small $2,000 a month throughout their entire working life.

Until retirement, every month, this person has $42.28 deducted from their pay towards CPP. The employer portion is the same, because employers match the deduction. So, for this person, every pay period, $84.56 goes towards their CPP in order to get a maximum of $884 each month after retirement. Simple math so far?

Now, if this person took that same $84 a month and invested it, at a 10% return over their lifetime, they would have $1,084,000! That translates to a monthly pension of $9,033! Let me say that again: Taking the same CPP deduction of someone who makes $2,000 a month for life, and investing it on their own, would have a pension of over $9,000 a month, AND he or she would leave an inheritance of over $1 million to their family.

THAT is why I want you to pay yourself first every month, and have some savings deducted right off your pay where you won’t miss it. What would you rather have? The $884 CPP, or your own $9,000 each month?